OREANDA-NEWS. Fitch Ratings has affirmed BP Mortgages S.r.l. (BPM1) and BP Mortgages Series 2007-2 (BPM2), as follows:

BPM1
Class A2 (ISIN IT0004215320) affirmed at 'AA+sf'; Outlook Stable
Class B (ISIN IT0004215338) affirmed at 'AAsf'; Outlook revised to Stable from Negative
Class C (ISIN IT0004215346) affirmed at 'BBB-sf'; Outlook revised to Stable from Negative

BPM2
Class A2 (ISIN IT0004239353) affirmed at 'AA+sf'; Outlook Stable
Class B (ISIN IT0004239379); affirmed at 'AAsf'; Outlook revised to Stable from Negative
Class C (ISIN IT0004239395); affirmed at 'BBBsf'; Outlook revised to Stable from Negative

The two prime Italian RMBS were originated and are serviced by Banco Popolare group (BP; BB/Stable/B).

KEY RATING DRIVERS
Mixed Asset Performance
The performance of the underlying portfolios has shown signs of stabilisation, especially for BPM2. Over the past 12 months, the proportion of late stage arrears (loans with three or more unpaid monthly instalments) has decreased to between 1.0% (BPM1) and 1.2% (BPM2) of the current pool, compared with between 1.1% in BPM1 and 1.6% in BPM2 as of September 2014. Meanwhile, the volume of cumulative gross defaults has increased by 70bp in BPM1 and 90bp in BPM2 and are currently reported at 6.8% (BPM1) and 8.9% (BPM2) of the initial pool. Loans in payment holidays have increased by 2.2 percentage points to 4.5% of the current pool in BPM1, while they remained stable at 2.1% in BPM2.

Fitch believes that the arrears and payment holidays patterns indicate more stable asset performance for BPM2, while BPM1's performance will remain volatile.

Originator Intervention
At the beginning of 2015, BP repurchased outstanding defaults of about EUR26m in BPM1 and EUR13m in BPM2 with the purpose of replenishing the outstanding cash reserves. To date, BPM1's cash reserve stands at 90.5% of its target, while it is fully funded in BPM2. The higher credit support granted through originator intervention is reflected in their affirmation and Stable Outlooks. Fitch deems credit enhancement sufficient to withstand stresses associated with the respective ratings.

In Fitch's opinion, originator intervention has been effective in increasing the level of available credit support and providing more liquidity to the structure. Nevertheless, the agency views originator support as unsustainable in the long term and therefore assumes that no further support will be granted in the future.

Lengthy Recovery Timing
Recovery collections as a proportion of the defaulted assets range between 29.9% (BPM2) and 48.5% (BPM1) and have mainly come from servicer buyback of defaults. Fitch estimates that without any defaults repurchase this measure would range between 18.7% and 22.4% of the gross defaults, highlighting the lengthy recovery process. We factored this variable into the analysis through a longer recovery timing of 14 years.

Adequate Liquidity
Fitch assessed structural mitigants available to cover payment interruption risk. The agency found that the combination of cash reserves and appointed back-up servicer facilitator (Securitisation Services S.r.l.) are sufficient to cover senior fees, swap payments and interest on notes for more than a payment date under a rising Euribor scenario. In addition, we believe that further coverage could be provided by the available commingling reserves (2.2% and 1.9% of the current note balance in BPM1 and BPM2, respectively), as they can be drawn for an amount corresponding to the funds retained in the collection account bank (BP).

RATING SENSITIVITIES
Changes to Italy's Long-term Issuer Default Rating (BBB+/Stable) and the rating cap for Italian structured finance transactions, currently 'AA+sf', could trigger rating changes on the notes.

Deterioration in asset performance beyond Fitch's standard assumptions could also trigger negative rating actions.

DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.

DATA ADEQUACY
Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. There were no findings that were material to this analysis. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring.

Fitch did not undertake a review of the information provided about the underlying asset pool ahead of the transaction's initial closing. The subsequent performance of the transaction over the years is consistent with the agency's expectations given the operating environment and Fitch is therefore satisfied that the asset pool information relied upon for its initial rating analysis was adequately reliable.

Overall, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.

SOURCES OF INFORMATION
The information below was used in the analysis.
- Transaction reporting provided by BP as of 30 September 2015
- Loan-by-loan information provided by European Data Warehouse as of 30 September 2015.